PETALING JAYA: Heveaboard Bhd is expected to see better financial results in the second quarter of 2022, as its raw material – log supply – has returned to a healthy level, according to Hong Leong Investment Bank (HLIB) Research.

       Despite the under-utilisation of the group’s particleboard plant at the beginning of the year, the research firm believes that the earnings impact from this will be partially mitigated by the shipment of the deferred finished goods from the previous quarter, as well as the strong sales volume from its ready-to-assemble (RTA) furniture segment.

       “This improvement is further bolstered by the increasing particleboard export sales to the Japanese market that fetch a better margin, compared to other export markets.

       “While glue cost is increasing following the oil price hike, the price level is still well below its peak in December 2021,” said HLIB Research in its latest report.

       It has maintained its “buy” call on the stock with an unchanged target price of 63 sen.

       The group also has a healthy balance sheet with net cash of RM95.8mil.

       Following a recent virtual meeting with HeveaBoard’s management, HLIB Research said the group’s particleboard sales volume to Japan had increased significantly since the second half of 2021.

       Japan is now one of HeveaBoard’s major export markets, it added.

       “This increase is a result of Japanese buyers diverting their orders from Europe to the South-East Asia region amid increasing cost arising from European wood manufacturers having increased their average selling prices substantially and increase in logistics cost,” explained HLIB Research.

       Riding on this demand increase, HeveaBoard will invest RM10mil capital expenditure (capex) to add a new short cycle line to produce value-added boards such as melamine faced chipboard or MFC laminated boards that will provide a higher margin compared to its raw boards.

       The group’s RTA segment has been catering to the increased sales volume to Japan.

       This is because buyers were stocking up in preparation for the Japanese fiscal new year, which started on April 1.

       It is a common tradition for Japanese students who are living on their own for the first time, as well as workers changing jobs during this period, to purchase new study or work furniture for the new year.

       Also, HeveaBoard will be spending RM10mil in capex to automate more production processes.

       This is in order to mitigate the labour shortage risk.

       The group is also spending another RM20mil to construct a new hostel that will comply with government regulations, with a capacity of 1,500 workers for its RTA segment.

       In January this year, HeveaBoard had temporarily halted its operations to clear the finished goods in the warehouse and rebuild its raw material inventory.

       Its factory resumed operations in February and raw material supply was back to a healthy level by March.

       HLIB Research also noted that HeveaBoard announced a final single-tier dividend of one sen per share for FY21, despite its net loss of RM1.2mil.

       Historically, HeveaBoard has consistently paid dividends far exceeding its dividend policy of over 30% of its net profit.